Here’s the current scoop: Last month, the CA Senate approved a package of bills authored by Senator Bob Wieckowski that would make the lives of consumers facing bankruptcy a lot easier. (Remember that name - my guess is this that we haven’t heard the last from this phenomenal legislator that has been both a small business owner and bankruptcy attorney in the past and is very in touch with the plight of the middle class).
Senate Bill 308, for example, would increase California’s state homestead exemption to $300,000 across the board! Currently, the homestead exemption, which is what protects the equity in your home if you need to file bankruptcy, begins at $75,000 for a single person and maxes out at $175,000 if you are 65 years of age or older, or physically or mentally disabled. Lately, with home valuations starting to swing into positive territory, I’ve had many clients get caught in a situation where they are forced into filing a Chapter 13 (that’s the type of bankruptcy where you end up repaying a portion of what you owe) simply because they have just enough equity in their home that they can’t file for a Chapter 7 (that’s the type of bankruptcy where you can get a discharge of your debt without repaying any of it back as long as you don’t have any major assets).
You might think that if a debtor has equity in their home that they would actually be able to pay their bills, but the reality is that wages have not kept up with the cost of living and so people are struggling (they’re “house rich, cash poor.)” Sure, a house could be sold to get the equity out, but with rent at an all-time high where are people going to live? People don’t want to lose their homes, so instead of letting a trustee sell the house in a Chapter 7, people have been opting for 13’s. This (hopefully) is all about to change as SB 308 makes its way through the Assembly.
By increasing the homestead exemption, more folks would be able to file a Chapter 7, keep their homes, and get back on their feet quicker. Give me a call if you want me to assess your current situation and see how the current exemptions (and hopefully the soon to be increased exemptions) can help you.